- Amended Annual Report (10-K/A)

x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011

or

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________to ______________

AISystems, Inc.

(Exact name of registrant as specified in its charter)

Nevada

20-2414965

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

2711 Centerville Rd.

Wilmington, Delaware

19808

(Address of principal executive offices)

Copies of communications to:

Gregg E. Jaclin, Esq.

Anslow + Jaclin, LLP

195 Route 9 South, Suite 204

Manalapan, New Jersey 07726

(732) 409-1212

Registrant’s telephone number, including area code:
(302) 351-2515

Securities to be registered under Section 12(b) of the Act: None

Securities to be registered under Section 12(g) of the Act:

Title of each class to be registered:

Common stock, par value $.001

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
o
Yes No
x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
o
Yes No
x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
x
No
o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
o
No
o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer
o

Non-accelerated filer
o

Accelerated filer
o

Smaller Reporting Company
x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act. Yes
o
No
x

The aggregate market value of voting stock held by non-affiliates of the registrant on April 13, 2011 was approximately $17,330,036. Solely for purposes of the foregoing calculation, all of the registrant’s directors and officers as of April 13, 2011, are deemed to be affiliates. This determination of affiliate status for this purpose does not reflect a determination that any persons are affiliates for any other purposes.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: As at May 17, 2012, there were 553,700,367 shares of Common Stock, $0.001 par value per share issued and outstanding.

Documents Incorporated By Reference –None

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A (this “Amendment”) amends the Annual Report on Form 10-K for the fiscal year ended December 31, 2011, which was originally filed on May 17, 2012 (the “Original Filing”), of AISystems, Inc. (the “Company”). The Company is filing this Amendment in order to include the Company’s auditor consent opinion that was inadvertently excluded from the Original Filing.

In addition, attached as Exhibits 31.1 and 32.1 hereto are updated certifications of the Company’s Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 13a-14(b) of the Exchange Act and Section 906 of the Sarbanes-Oxley Act of 2002.

Except as described above, no other amendments have been made to the Original Filing. This Amendment does not reflect events after the filing of the Original Filing or modify or update any disclosures that may have been affected by subsequent events.

3

Item 8.

Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

AISystems, Inc.

I have audited the accompanying consolidated balance sheets of AISystems, Inc. and subsidiaries (the “Company”) as of December 31, 2011 and the related consolidated statements of operations, statements of stockholders’ deficiency, and cash flows
for the years then ended
. These financial statements are the responsibility of the Company’s management. My responsibility is to express an opinion on these financial statements based on my audit. The consolidated financial statements of AISystems, Inc. as of December 31, 2010, were audited by another auditor whose report dated April 14, 2011 expressed an unqualified opinion on those statements.

I conducted my audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion.

In my opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AISystems, Inc. and subsidiaries as of December 31, 2011 and the results of their operations and cash flows for
the year then ended
in conformity with accounting principles generally accepted in the United States.

The accompanying financial statements referred to above have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company’s present financial condition raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to this matter are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Loss on termination of lease (net of $10,000 paid prior to September 30, 2011)

170,000

170,000

Changes in operating assets and liabilities:

Prepaid expenses and other current assets

225,572

48,332

202,447

Subscription receivable

-

15,825

-

Accounts payable and accrued liabilities

1,294,838

1,559,326

7,489,180

Loans receivable from employee

-

(478,129

)

Net cash used in operating activities

(1,354,323

)

(3,132,661

)

(29,868,736

)

Cash flows from investing activities:

Purchase of property and equipment

-

(1,900

)

(1,269,992

)

Net cash provided by (used in) investing activities

-

(1,900

)

(1,269,992

)

Cash flows from financing activities:

Proceeds from shares issued and subscriptions

1,148,519

1,694,684

26,460,305

Proceeds from notes payable to stockholders

212,500

803,050

4,926,190

Proceeds from (repayment of) loans payable to controlling stockholder

(12,000

)

(142,138

)

Proceeds from loans from related party

-

44,444

Proceeds from (repayment of) equipment loan

(3,828

)

(3,793

)

5,693

Bank Indebtedness

-

-

Payment on obligation under capital lease

-

-

(153,437

)

Net cash provided by financing activities

1,345,191

2,493,941

31,141,057

Net increase (decrease) in cash

(9,132

)

(640,620

)

2,329

Cash, beginning of period

11,461

652,081

-

Cash end of period

$

2,329

$

11,461

$

2,329

Supplemental cash flow information:

Interest paid

$

-

$

-

$

-

Income tax paid

$

-

$

-

$

-

Non-cash investing and financing activities:

Conversion of debt into stock

$

732,982

$

-

$

2,465,095

See notes to consolidated financial statements.

7

AISYSTEMS, INC. ( A development stage company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY

For the period from December 7, 2005 (inception) to December 31, 2011

(Expressed in US Dollars)

Series B Preferred

Stock,
$0.001 par

Series C Preferred

Stock,
$0.001 par

Common Stock,

$0.001 par

Additional Paid in

Capital

Subscription Advances (Receivables)

Deficit accumulated during the development stage

Total

Shares

Par

Shares

Par

Shares

Par

Shares issued in consideration

-

-

-

-

-

-

-

-

-

-

of Intellectual Property ("IP")

-

-

-

-

19,153,414

19,153

(19,143

)

-

-

10

Shares issued for cash during the year

-

-

-

-

1,312,698

1,313

341,367

-

-

342,680

Net loss

-

-

-

-

-

-

-

-

(64,350

)

(64,350

)

Balance at December 31, 2005

-

-

-

-

20,466,112

20,466

322,224

(64,350

)

278,340

Shares issued in consideration of IP

-

-

-

-

7,661,365

7,661

(7,661

)

-

-

-

Special distribution in consideration of IP

-

-

-

-

-

-

(4,000,000

)

-

-

(4,000,000

)

Shares issued for cash during the year

-

-

-

-

6,518,673

6,519

3,490,881

-

-

3,497,400

Shares issued upon exercise of options

-

-

-

-

162,804

163

42,337

-

-

42,500

Stock based compensation

-

-

-

-

-

-

234,065

-

-

234,065

Net loss

-

-

-

-

-

-

-

-

(2,899,295

)

(2,899,295

)

Balance at December 31, 2006

-

-

-

-

34,808,954

34,809

81,846

-

(2,963,645

)

(2,846,990

)

Shares issued for cash during the year

-

-

-

-

6,264,028

6,264

8,768,637

-

-

8,774,901

Stock based compensation

-

-

-

-

-

-

17,245,216

-

-

17,245,216

Net loss

-

-

-

-

-

-

-

(24,382,325

)

(24,382,325

)

Balance at December 31, 2007

-

-

-

-

41,072,982

41,073

26,095,699

(27,345,970

)

(1,209,198

)

Shares issued in consideration of IP

-

-

-

-

1,915,341

1,915

(1,915

)

-

-

-

Shares issued for cash during the year

-

-

-

-

1,618,204

1,618

8,447,028

-

-

8,448,646

Issuance of preferred shares

2,329,905

2,330

-

-

-

-

-

-

-

2,330

Dividend on common shares

-

-

-

-

-

-

(2,330

)

-

-

(2,330

)

Common share warrants issued in connection with debt

-

-

-

-

-

-

1,534,260

-

-

1,534,260

Shares issued in connection with exercise of warrants

-

-

-

-

29,707

30

280

-

-

310

Shares issued upon exercise of options

-

-

-

-

19,153

19

19,981

-

-

20,000

Stock based compensation

-

-

-

-

-

-

3,742,156

-

-

3,742,156

Net loss

-

-

-

-

-

-

-

-

(16,343,658

)

(16,343,658

)

Balance at December 31, 2008

2,329,905

2,330

-

-

44,655,387

44,656

39,835,158

(43,689,628

)

(3,807,484

)

Shares issued $0.75 per share for cash during the year

-

-

-

-

552,256

552

431,948

-

-

432,499

Shares issued $0.10 per share for cash during the year

-

-

-

-

14,679,904

14,680

1,518,196

-

-

1,532,876

Shares issued $0.25 per share for cash during the year

-

-

-

-

3,972,480

3,972

1,033,044

-

-

1,037,016

Consideration received for cancellation of IP

-

-

-

-

-

-

800,000

-

-

800,000

Cancellation of shares issued for IP

-

-

-

-

(1,915,341

)

(1,915

)

1,915

-

-

-

Conversion of warrants for anti dilution

-

-

-

-

6,459,189

6,459

(6,459

)

-

-

-

Share issued on conversion of debt

-

-

-

-

2,214,553

2,215

1,732,113

-

-

1,734,328

Common share warrants issued in connection with debt

-

-

-

-

-

-

1,179,347

-

-

1,179,347

Stock based compensation

-

-

-

-

9,097,871

9,098

5,790,211

-

-

5,799,309

Shares issued in connection with exercise of warrants

-

-

-

-

5,248,493

5,248

(3,891

)

-

-

1,357

Net loss

-

-

-

-

-

-

-

-

(17,651,225

)

(17,651,225

)

Balance at December 31, 2009

2,329,905

2,330

-

-

84,964,792

84,965

52,311,582

(61,340,853

)

(8,941,976

)

Series A shares delivered (Note 1)

(2,329,905

)

(2,330

)

-

-

-

-

-

-

-

(2,330

)

Series B shares issued (Note 1)

2,329,905

2,330

-

-

-

-

-

-

-

2,330

Shares issued $0.25 for cash during the year

-

-

-

-

1,781,267

1,781

463,219

-

-

465,000

Shares issued $0.10 for cash during the year

-

-

-

-

8,735,810

8,736

903,457

-

-

912,193

Shares issued $0.20 for cash during the year

-

-

-

-

1,035,000

1,035

205,965

-

-

207,000

Subscriptions receivable

-

-

-

-

1,915,341

1,915

189,619

(191,534

)

-

-

Subscriptions advances

-

-

-

-

-

-

-

105,676

-

105,676

Shares issued in connection with exercise of warrants

-

-

-

-

4,906,239

4,906

(91

)

-

-

4,815

Stock-based compensation

-

-

-

-

-

-

530,863

-

-

530,863

Acquisition of Wolf Resources Inc.

-

-

-

-

38,754,000

38,754

(91,744

)

-

-

(52,990

)

Shares issued $ 0.45 per share for services during the year

-

-

-

-

25,000

25

11,225

-

-

11,250

Shares issued $ 0.50 per share for services during the year

-

-

-

-

1,450,000

1,450

723,550

-

-

725,000

Shares issued $ 0.42 per share for services during the year

-

-

-

-

2,200,000

2,200

921,800

-

-

924,000

Shares issued $ 0.49 per share for services during the year

-

-

-

-

1,625,007

1,625

794,629

-

-

796,254

Shares issued $ 0.27 per share for services during the year

-

-

-

-

300,000

300

80,700

-

-

81,000

Shares issued $ 0.24 per share for services during the year

-

-

-

-

40,000

40

9,360

-

-

9,400

Net loss

-

-

-

-

-

-

-

-

(7,001,360

)

(7,001,360

)

Balance at December 31, 2010

2,329,905

2,330

-

-

147,732,456

147,733

57,054,133

(85,858

)

(68,342,213

)

(11,223,875

)

Shares issued $0.20 for cash during the period

-

-

-

-

1,450,000

1,450

288,550

-

-

290,000

Shares issued $0.10 for cash during the period

-

-

-

-

250,000

250

24,750

-

-

25,000

Shares issued $0.15 for cash during the period

-

-

-

-

340,000

340

50,660

-

-

51,000

Share issued for $ 0.16 from subscription advances

-

-

-

-

95,406

95

15,581

(15,676

)

-

-

Share issued for $ 0.20 from subscription advances

-

-

-

-

200,000

200

39,800

(40,000

)

-

-

Shares issued $ 0.25 per share for debt conversions

-

-

-

-

1,088,736

1,089

216,658

-

-

217,747

Shares issued $ 0.25 per share for debt conversions

-

-

-

-

2,000,000

2,000

198,000

-

-

200,000

Shares issued $ 0.056 per share for debt conversions

-

-

-

-

267,857

268

14,732

-

-

15,000

Shares issued $ 0.0533 per share for debt conversions

-

-

-

-

281,426

281

14,719

-

-

15,000

Shares issued $ 0.0347 per share for debt conversions

-

-

-

-

432,277

432

14,568

-

-

15,000

Shares issued $ 0.0269 per share for debt conversions

-

-

-

-

840,149

840

21,760

-

-

22,600

Shares issued $ 0.0343 per share for debt conversions

-

-

-

-

437,318

437

14,563

-

-

15,000

Shares issued $ 0.0277 per share for debt conversions

-

-

-

-

541,516

541

14,459

-

-

15,000

Shares issued $ 0.20 per share for debt conversions

-

-

-

-

78,000

78

15,522

-

-

15,600

Shares issued $ 0.025 per share for debt conversions

-

-

-

-

1,300,000

1,300

31,200

-

-

32,500

Subscription advances

-

-

-

-

-

-

-

276,864

-

276,864

Shares to be issued for debt conversions

-

-

-

-

-

-

-

105,880

-

105,880

Stock based compensation

-

-

-

-

-

-

655,525

-

-

655,525

Subscription advances

-

-

-

-

-

-

-

505,655

-

505,655

Subscriptions receivable

-

-

-

-

-

-

-

(129,164

)

-

(129,164

)

Share issued for $ 0.20 for previous subscription advance

-

-

-

-

50,000

50

9,950

-

-

10,000

Share issued for $ 0.20 for previous subscription advance

-

-

-

-

59,582

60

11,857

-

-

11,916

Share issued for $ 0.20 for previous subscription advance

-

-

-

-

59,582

60

11,857

-

-

11,916

Share issued for $ 0.20 for previous subscription advance

-

-

-

-

59,582

60

11,857

-

-

11,916

Share issued for $ 0.20 for previous subscription advance

-

-

-

-

59,582

60

11,857

-

-

11,916

Share issued for $ 0.20 for previous subscription advance

-

-

-

-

59,582

60

11,857

-

-

11,916

Share issued for $ 0.20 for previous subscription advance

-

-

-

-

59,582

60

11,857

-

-

11,916

Share issued for $ 0.20 for previous subscription advance

-

-

-

-

59,582

60

11,857

-

-

11,916

Share issued for $ 0.20 for previous subscription advance

-

-

-

-

59,582

60

11,857

-

-

11,916

Share issued for $ 0.20 for previous subscription advance

-

-

-

-

59,582

60

11,857

-

-

11,916

Share issued for $ 0.20 for previous subscription advance

-

-

-

-

59,582

60

11,857

-

-

11,916

Share issued for $0.0296 during the period from debt conversion

-

-

-

-

388,777

389

11,111

-

-

11,500

Share issued for $0.0226 during the period from debt conversion

-

-

-

-

447,000

447

9,664

-

-

10,111

Share issued for $0.0177 during the period from debt conversion

-

-

-

-

395,281

395

6,605

-

-

7,000

Share issued for $0.0122 during the period from debt conversion

-

-

-

-

1,229,286

1,229

13,815

-

-

15,044

Share issued for $0.006573 during the period from debt conversion

-

-

-

-

2,282,063

2,282

12,718

-

-

15,000

Share issued for $0.001411 during the period from debt conversion

-

-

-

-

3,543,587

3,544

1,456

-

-

5,000

Series C Preferred Stock Share issued

-

-

1

-

-

-

100,000

-

-

100,000

Beneficial conversion feature of convertible debt issued July 5, 2012

-

-

-

-

-

-

475,399

-

-

475,399

Net loss

-

-

-

-

-

-

-

-

(4,194,908

)

(4,194,908

)

Balance at December 31, 2011

2,329,905

$

2,330

1

$

-

$

166,266,955

$

166,267

$

59,444,465

$

617,701

$

(72,537,121

)

$

(12,306,358

)

See notes to consolidated financial statements.

8

AISYSTEMS, INC. (A development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2011 and 2010

1. Organization

Airline Intelligence Systems Inc. (“AIS”) was incorporated on December 7, 2005 under Delaware General Corporation Law. Since its inception, AIS’s efforts have been devoted to the development of the unique proprietary operating system jetEngine™, which management believed would be a new paradigm for strategic airline management that enables the integration and control of an airline’s schedule planning, revenue management, and irregular operations functions, amongst other things. AIS has two wholly owned Canadian subsidiaries Airline Intelligence Systems Corp. and AIS Services Canada Inc. The subsidiaries provide management services and corporate services to the parent company.

AIS completed a 2 for 1 stock split on June 11, 2007. All amounts shown and incorporated in these consolidated financial statements are shown on a post-split basis as if the stock split had occurred on the earliest reported date.

On March 19, 2010, AISystems, Inc. (the “Company”), formerly Wolf Resources Inc. (a publicly listed shell company), acquired AIS. In accordance with the Share Exchange Agreement, each issued and outstanding common share of AIS was converted for 0.95767068 common share of the Company and each issued and outstanding Series A preferred share of AIS was converted for one Series B preferred share of the Company (“reverse merger”). As a result of the transaction, the Company was no longer considered to be a shell company for reporting purposes.

The reverse merger has been accounted for as a recapitalization of the Company whereby the historical financial statements and operations of AIS became the historical financial statements of the Company, with no adjustment to the carrying value of the assets and liabilities. The accompanying consolidated financial statements reflect the recapitalization of the stockholder’s deficiency as if the transaction occurred as of the beginning of the first period presented. Accordingly, the Company has reflected the issuance of 38,754,000 common shares for the total net monetary liabilities of the shell company in the amount of $52,990 in the consolidated statement of changes in stockholders' deficiency.

On September 7, 2011, Dynamic Intelligence Inc. (“
Dynamic”
) provided the Company with a Notice of Non-Renewal, pursuant to an Intellectual Property Agreement (the “
Agreement
”) entered into by the parties on December 9, 2005. Pursuant to the terms of the provided notice of non-renewal at least ninety (90) days before the end of the then-current term. Due to Dynamic’s Notice of Non-Renewal, the Agreement ceased on December 9, 2011.

The Agreement provided the Company with an exclusive and perpetual license to Dynamic’s intellectual property, which permitted the Company to use proprietary technology to develop a unique proprietary business platform for the airline industry that is comprised of systems and mathematical algorithms capable of generating significant improvements in strategic planning capabilities, resource scheduling, revenue management and integrated operations.
Since September 7, 2011, the Company has been seeking other business opportunities to acquire.

2. Going concern and management’s plans

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) which contemplate continuation of the Company as a going concern. The Company has yet to fully commercialize its technologies and consequently has incurred significant losses since its inception. At December 31, 2011, the Company’s deficit accumulated during the development stage is approximately $72.5 million, and the Company had utilized cash in operating activities of approximately $29.8 million. The Company has funded these losses and cash flows through the sale of equity securities, the issuance of debt and from credit granted by vendors. The Company is also in arrears to certain creditors and in default under certain agreements which may have a material adverse effect on operations or lead to the ceasing of operations.

9

AISYSTEMS, INC. (A development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2011 and 2010

2. Going concern and management’s plans, continued

There is no assurance that the Company will be able to raise the necessary funds to continue operations as envisioned or that such funds can be raised on favorable terms to existing stockholders. This could result in significant dilution or a loss of investment to any current or future stockholders. Any funds raised will be used to engage potential customers, to fund product development, to provide working capital, to repay debt and for other corporate purposes. If the Company is unable to raise sufficient funds on the required timelines its ability to implement its vision will be hindered and this could result in the entire loss of any investment in the Company.

These factors raise substantial doubt about the ability of the Company to continue as a going concern. There can be no assurance that the Company will have adequate capital resources to fund planned operations or that any additional funds will be available to the Company when needed, or if available, will be available on favorable terms in the amounts required by the Company. If the Company is unable to obtain adequate capital resources to fund operations, it may be required to delay, scale back or eliminate some or all of its operations, which may have a material adverse effect on the Company’s business, results of operations and ability to continue as a going concern. These consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

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3. Summary of significant accounting policies

Development Stage Company

The Company complies with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 915 (SFAS 7) for its characterization of the Company as a development stage company. Furthermore, the Company complies with FASB ASC 720-15-25 (SOP-98-5), “Reporting on the Costs of Start-Up Activities,” under which start-up costs and organizational costs are expensed as incurred.

Principles of consolidation

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, and include the accounts of the Company and its wholly owned subsidiaries, namely Airline Intelligence Systems Inc. (AIS), Airline Intelligence Systems Corp. and AIS Canada Services Inc. All inter-company accounts and transactions have been eliminated on consolidation
.

Use of estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reported periods. Actual results could differ from these estimates.

Revenue recognition

The Company follows the provisions of FASB ASC 985-605 (SOP 97-2), “Software Revenue Recognition” and Staff Accounting Bulletin (SAB) 104, “Revenue Recognition in Financial Statements.” Revenue is recognized from the sale of product and software licenses when delivery has occurred based on purchase orders, contracts or other documentary evidence, provided that collection of the resulting receivable is deemed probable by management.

11

AISYSTEMS, INC. (A development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2011 and 2010

3. Summary of significant accounting policies, continued

Deferred revenue at December 31, 2010 represents unearned income associated with the Aeromexico Software License Agreement (see Note 8). Upon expiration of this agreement on
June 7, 2011
, the Company recognized the $1,000,000 initial fee collected from Aeromexico as revenue.

Interest income is recognized when earned.

Restricted cash

The Company sets funds aside in a separate bank account related to the certain contractual obligations. Such amounts are termed Restricted Cash (Note 4).

Property and equipment

Property and equipment is stated at cost and is depreciated using the declining balance method over the estimated useful lives of the assets which range from three to five years. Maintenance and repairs are charged to expense as incurred.

Intellectual property

Under FASB ASC 350 (SFAS 142), “Goodwill and Other Intangible Assets”, goodwill and intangible assets with indefinite useful lives are not amortized. These standards require that these assets be reviewed for impairment at least annually, or whenever there is an indication of impairment. Intangible assets with finite lives are amortized over their estimated useful lives and reviewed for impairment in accordance with FASB ASC 350-30-35 (SFAS 144), “Accounting for the Impairment or Disposal of Long-Lived Assets”.

The Company’s intellectual property at December 31, 2010 consisted of the exclusive worldwide and perpetual license to exploit certain intellectual property (“Dynamic Intellectual Property”), solely in the airline field, acquired from Dynamic Intelligence Inc., the controlling shareholder. The intellectual property had been recorded at its cost of $10, which was written down to $0 upon receipt of Dynamic’s Notice of Non-Renewal on September 7, 2011 (see Note 1).

Impairment of long-lived assets

Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Income taxes

The Company accounts for income taxes under the provisions of FASB ASC 740 (SFAS 109), “Accounting for Income Taxes”. Under FASB ASC 740 (SFAS 109), deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. A valuation allowance is required to the extent any deferred tax assets may not be realizable.

12

AISYSTEMS, INC. (A development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2011 and 2010

3. Summary of significant accounting policies, continued

As of December 31, 2011 and 2010, the Company did not have any amounts recorded pertaining to uncertain tax positions. The Company files federal and provincial income tax returns in Canada and federal, state and local income tax returns in the U.S., as applicable. The Company may be subject to a reassessment of federal and provincial income taxes by Canadian tax authorities for a period of three years from the date of the original notice of
assessment in respect of any particular taxation year. In certain circumstances, the U.S. federal statute of limitations can reach beyond the standard three year period. U.S. state statutes of limitations for income tax assessment vary from state to state. Tax authorities of Canada and U.S. have not audited any of the Company‘s, or its wholly-owned subsidiaries’ income tax returns for the years ended December 31, 2011 and 2010.

The Company recognizes interest and penalties related to uncertain tax positions in tax expense. During the years ended December 31, 2011and 2010, there were no charges for interest or penalties.

Stock-based compensation

The Company accounts for stock-based compensation in accordance with FASB ASC 718 (SFAS 123R), “Share-Based Payment”, that addresses the accounting for stock-based payment transactions in which an enterprise receives employee services in exchange for equity instruments of the enterprise.

Stock-based compensation expense recognized during the period is based on the fair value of the portion of stock-based payment award that is ultimately expected to vest. Stock-based compensation expense recognized in the consolidated statements of operations includes compensation expense for the stock-based payment awards based on the grant date fair value estimated in accordance with FASB ASC 718 (SFAS 123R), as stock-based compensation expense recognized in the consolidated statements of operations is based on awards ultimately expected to vest, reduced for estimated forfeitures. These standards require forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. When estimating forfeitures, the Company considers historic voluntary termination behaviors as well as trends of actual option forfeitures. The forfeiture rate utilized in the years ended December 31, 2011 and 2010 was 15% and 15% respectively.

The fair value of options at the date of the grant is accrued and charged to operations, with an offsetting credit to additional paid in capital, on a straight line basis over the vesting period. If the stock options are ultimately exercised, the applicable amounts of additional paid in capital are transferred to share capital. The fair value of options is calculated using the Black-Scholes option pricing model.

Foreign currency translation

The Company has chosen the US dollar as its reporting currency. The functional currency of the Company and its subsidiaries is also the US dollar.

Transactions denominated in other currencies are recorded in the applicable functional currencies at the rates of exchange prevailing when the transactions occur. Monetary assets and liabilities denominated in other currencies are translated into the applicable functional currencies at rates of exchange in effect at the balance sheet dates. Exchange gains and losses are recorded in the consolidated statements of operations.

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AISYSTEMS, INC. (A development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2011 and 2010

3. Summary of significant accounting policies, (continued)

Loss per share

The Company computes net loss per share in accordance with ASC 260, Earnings Per Share, which requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average
number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti dilutive.

Financial instruments

Financial assets and liabilities, including derivative instruments, are initially recognized and subsequently measured based on their classification as "held-for-trading", "available-for-sale" financial assets, "held-to-maturity" investments, "loans and receivables", or "other" financial liabilities.

Held-for-trading financial instruments are measured at their fair value with changes in fair value recognized in operations for the period. Available-for-sale financial assets are measured at their fair value and changes in fair value are included in other comprehensive income (loss) until the asset is removed from the balance sheet or until impairment is assessed as other than temporary. Held-to-maturity investments, loans and receivables and other financial liabilities are measured at amortized cost using the effective interest rate method. Loans receivable for employees are classified as loans and receivables and are recorded at amortized cost. Accounts payable and accrued liabilities, notes payable and loans payable to controlling stockholder are classified as other financial liabilities and are recorded at amortized cost.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on previously reported net loss or cash flows.

Recent accounting pronouncements

Changes to accounting principles generally accepted in the United States of America (U.S. GAAP) are established by the Financial Accounting Standards Board (FASB) in the form of accounting standards updates (ASU’s) to the FASB’s Accounting Standards Codification.

The Company considers the applicability and impact of all ASU’s. ASU’s has been assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position and results of operations.

4. Restricted cash

Restricted cash has included amounts held by a bank as a collateral security for a letter of credit issued in favor of the lessor of its factor Kirkland facility and an escrow required pursuant to a loan guarantee agreement. In 2010, the funds were used to settle amounts owed under the agreements.

Pursuant to the Aeromexico Software License Agreement (see Note 3), the Company was required to hold in escrow ten percent of all payments received from the customer as restricted cash while the contract existed to satisfy its indemnification obligations to the customer pursuant to the contract. For the period from December 7, 2005 (inception) to December 31, 2010, the Company was not in compliance with this term of the customer contract.